A trading partnership is made by at least two or more persons to start a business. There is a pooling of investments and contribution of time and effort. Normally, family or friends make ideal partners as there is trust and filial relationship. They agree on a trading agreement and business operation guidelines. The partners choose a structure that meets their financial and operational needs.
There are types of partnership they could choose from. There is limited partnership in which the investment of individual partners are more protected as their liability is limited to what they have invested. One partner manages the business while others do not participate in the operations and have no liability. General partnership, on the other hand, have partners involved in the daily operations of the business and are jointly or severally liable for debts and lawsuits. In general partnership, the partners jointly own the business, share in the profits of losses of the business and have equal right in the management of the business.
Forming a partnership with a friend or friends must be discussed and agreed upon between parties whether they will choose a general or limited type of partnership. As soon as they have agreed on what type, they will proceed to register their business with the state. Each partner should be knowledgeable about tax matters and the business operation itself so as to avoid disputes and ill will. There are advantages and disadvantages that the partners should consider before going into a trading partnership.
Advantages
It is easy to pool start-up capital from one or more investors to ensure a solid fund-base for the business.
There will be shared responsibility in the running of the business as each one, according to his ability, can help manage it to grow and prosper.
It is easier for partners to plan, decide and execute strategies for the sustainability and profitability of the business. Everyone is keeping tab on the management of the business. Each one takes care of the operation of the business.
The members are assured of equal profit sharing on the gains of the business.
It is easier to increase the investment portfolio with the active participation of each member.
There is security in obtaining loans for the business operations because of the partners’ collective agreement.
There is always check and balance in the operations.
Starting a business only requires low start-up costs.
The partners’ business affairs are held in privacy.
The partners can agree on profit sharing and tax liabilities according to their investment.
The partnership does not pay income tax as each partner pays the tax personally.
Disadvantages
There may be disagreements between partners and one or two may leave the partnership and may cause the partnership’s dissolution.
The partners are each liable to answer for the business’ debts and other lawsuits.
A partner may make a misrepresentation of the company or ruin it because of corruption.
A partnership may be dissolved when partners break away and start their own personal business.

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